Question

How does global economic competition affect the price elasticity of demand in the domestic market and decisions related to the strategy a firm uses to compete? Detailed Answer.

Answer 1

All business operations revolves around the market conditions prevailing across the globe. New firms and the existing firms are trying to capture the permanent market according to the capacity level of adopting new business strategy. The Elasticity of demand for such products are mainly focused as determinant for the firms to face the challenges in glotbal economic competition and also acts as factor for affecting global economic competition. Let us explain those factors and also the degree of usage by the firms in order to boost the sales.

Pricing methods are need to regularized periodically in order to fix accordingly with the tastes and preferences of the customers. Before preparing the prices for the particular products, the marketing department of the firms should make research on consumers choices on their products with the field work investigations. Consumers always prefer the branded products specialization. Firms should handle the optimum input mix of procedures to produce the products with unique feature. International level of products faces the challenges of marketing in fixing the prices accordingly with the non compromised quality.

Secondly, Rules and Regulations for protecting the consumers from evils of competitive prices are also effects the price elasticity of the price across all countries. For example in the US nation, Initially in the earlier period of 19th century, Robinson–Patman Act of 1936 formulated to save the customers from the differences in the prices within different states. This is also can be referred as price discrimination. In the country where different states having local governing bodies setting up of own regulations of poses problems of fixing the price of the products. Not all the consumers for all the states have sound economic and purchasing power to buy the branded products with the fixed price of the firms. So firms are forced to fix the different prices for each zones. This in turn it divides the market reputation of all the states along with the weakness of the price elasticity of the demand.

Thirdly, Lowering the price in type of perfect competition also acts as a serious threat to earn profits at the optimum level. New entry of the firms always has the intention of capturing the customers. The marketing strategy of Predatory pricing is followed by new firms. Such strategy has the idea of fixing the low prices which are very most affordable to the customers who are financially very weak in nature. They can also gain the benefit of consumer surplus. But at the same time predatory pricing is not a permanent one. The price fixed by the new firms as the introductory offers only in the short-run period. But when the new firms started to earn the Net revenue profits above the equilibrium level, then automatically they tend to increase the price gradually. Again they tend to loose the customers. Such customers may choose another products which are very priced very low in nature.

Fourthly, we can evidently prove the facts that the firms with identical products need to adopt different strategies to fix the prices on their own. Fixing too much price above the price ceiling level and fixing very low price below the price ceiling level also poses the problem. In order to balance the global competition, many firms started to sell their products through online mode. In later 90s. Many firms in US followed the e-commerce option to sell their products with adjustable prices. For example Amazon company has applied the online sales techniques and captured the considerable markets for all type of products. And also many companies like Flip Cart, Snap deals are identical companies are also using the e-commerce online strategy to sell their products.

All the above facts prove the effects of global economic competition affect the price elasticity of demand in the domestic market with adopted strategy of the firms to compete with all rival firms.